The IRS Tax Home Test for Determining Travel Deductions

The ability to deduct business travel expenses hinges on the Internal Revenue Service (IRS) concept of a “tax home.” Under tax law through 2025, this deduction is available to self-employed individuals, not employees with unreimbursed expenses. The IRS defines a tax home as the entire city or general area of your main place of business or employment, regardless of where you maintain your personal residence. Understanding this distinction is necessary to determine if your travel costs are deductible.

The purpose of this rule is to prevent the deduction of daily commuting costs. The tax home concept ensures deductions are for costs incurred when work requires you to be away from your primary area of income generation for a period that necessitates sleep or rest. Identifying your tax home is the foundational requirement before deducting any travel expenses.

Determining Your Principal Place of Business

If you work in one primary location, that city or general area is your tax home. When you have more than one regular place of work, you must determine your principal place of business. The IRS provides specific factors to consider for this judgment.

The first factor is the total time you spend working in each location, measured by the number of workdays. Another element is the degree of your business activity in each place, which considers the nature of the work performed, such as managing operations or performing services central to the business.

A third factor is the financial return, or income, you derive from each location. For example, a consultant might have a home office but spend 60% of their workdays at a client’s site in another city, deriving 70% of their income from that site. The client’s city would be their principal place of business and tax home.

Once a principal place of business is identified using these factors, that location is your tax home. This is true even if your family home is located miles away. Costs for traveling from your family home to your tax home are non-deductible personal commuting expenses, and meals and lodging expenses incurred at your tax home are also not deductible.

The Three-Factor Test for No Regular Place of Business

For individuals without a regular or main place of business, the IRS applies a three-factor test to determine if their personal residence qualifies as their tax home. This test distinguishes between a person with a fixed home and an itinerant worker without a fixed base of operations.

The first factor is whether you perform part of your business in the area of your main home and use that home for lodging while working there. This requires demonstrating a tangible business connection to the residence, such as performing administrative work or client calls from that location.

The second factor is whether you incur duplicate living expenses. This means you have ongoing costs to maintain your main home, such as rent or utilities, that are duplicated by lodging and meal expenses incurred while you are away on business. This demonstrates the financial burden of maintaining two residences simultaneously.

The final factor considers your personal connections to the location of your main home. This includes having family there, maintaining social or bank accounts, or frequently using the home for lodging. These elements demonstrate you have not abandoned the area.

You must satisfy at least two of these three factors to establish your main home as your tax home. If you fail to meet this requirement, the IRS considers you an “itinerant,” meaning your tax home is wherever you happen to be working. As an itinerant, you are never “away from home” and cannot deduct any travel expenses.

Temporary vs Indefinite Work Assignments

Work assignments can modify your tax home determination. The deductibility of travel expenses depends on whether an assignment is temporary or indefinite, which is based on the realistic expectation of its duration.

The IRS defines a temporary assignment as one realistically expected to last for one year or less. If you have an established tax home and accept a temporary assignment elsewhere, you are “away from home.” You can deduct your necessary travel expenses, including transportation, lodging, and meals, for the assignment’s duration.

An indefinite assignment is one expected to last for more than one year. If you accept an assignment realistically expected to exceed one year, that location becomes your new tax home, even if the assignment ends up lasting less than a year. Since you are no longer traveling away from home, you cannot deduct travel expenses incurred there.

An assignment that starts as temporary can become indefinite. For example, if a 10-month project is extended so that the total time away is expected to exceed one year, the assignment becomes indefinite. From the date the expectation changes, the location becomes the new tax home, and travel expenses are no longer deductible.